Dirty Dealings with Solid Energy

Last year, on 19 May, Solid Energy was one of five SOEs that National announced would be partially privatised (see: Budget 2011: Govt seeks $7 billion in asset sales). Bill English announced, with a naivetee usually reserved for wildly idealistic, wide-eyed youth,

“Well targeted investment in infrastructure helps lift productivity, which over time will mean better wages and higher living standards for New Zealand families.”

To which, as the youth of today might reply,

“Yeah, whatever.”

By 29 August, this year, as demand from China lessened, and the price of coal dropped, Solid Energy announced plans to make 363 workers redundant.

CEO, Don Elder, said,

“I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”

Along with Maori Treaty claims over water rights, and papers being filed in the High Court on 23 October (see: Mighty River sale paused during court action) which will see a delay in removing Mighty River Power from the SOE Act, the realisation that Solid Energy was also unsaleable under current economic conditions was another unwanted ‘hiccup’ for National.

On the same day, Solid Energy anounced that redundancies would increase from 363 to 460 and staffing levels would reduce from 1,800 at the beginning of the year, to 1,360.

Christchurch was to lose half of the 313 jobs at Solid Energy’s head office – another ‘hit’ against this quake ravaged city, along with planned school closures; problems with insurance companies; and Cantabrians leaving the area.

Remember that, ostensibly, redundancies were related to international coal prices and profit losses – not the deferred partial-privatisation of the SOE.

Yet, according to Solid Energy’s own Results Announcements 2012 report, the company’s income was actually better than the preceding year,

Good operating performance overtaken by asset write downs

• Trading performance was good in a deteriorating market with strong NZD. Underlying earnings were $99.7 million (2011: $86.2 million). • Asset write downs of $110.6 million net of tax and other adjustments have resulted in a $40.2 million loss after tax (2011: $87.2 million).

In plain english (not the mumbled Prime Ministerial version), Solid Energy made an after-tax profit of $99.7 million – an increase from $86.2 million in 2011.

Employing a book-keeping, accountancy “trick”, Solid Energy reduced their own asset values by $110.6 million. (That’s like saying your house was worth $300,000 in 2011, but only $250,000 this year. You still have your house and you’re living in it – nothing else has changed. Only the theoretical valuation has ‘reduced’. Next year that valuation could rise back to $300,000 or even more or maybe less. That’s creative accountancy for you.)

The point is that Solid Energy’s profit rose from $86.2 million to $99.7 million.

In fact, Solid Energy’s revenue in 2012 was $978.4 million – almost a billion dollars – an 18% increase from the previous year.

The proposition that Solid Energy is more profitable than either Don Elder or National make out is born out by this interesting article, in Taranaki’s ‘Daily News‘, on 12 October this year. It appears that Australian coal mining giant, Bathurst, is experiencing a growth in share value as it discovers greater coal reserves at its Buller project on the West Coast,

Bathurst is proceeding with “an extensive drilling programme” – indicating that the company appears unphased by current coal prices and is investing long-term in recovering this resource.

So what to make of the planned 460 redundancies?

What to make of Bathurst’s share price rising and continuing to invest in a comprehensive drilling programme?

The only conclusion that one can arrive at is that planned redundancies are a covert operation to “maximise” Solid Energy’s value and “efficiency”. The cost of redundancies – estimated at around $10 million – will be paid by the taxpayer and not the shareholders of any future part-privatised company (see: Foreign workers lured by ‘work for life’ among sacked miners).

Reducing staff numbers – commonly referred to as “re-structuring” – is a common technique for companies to cut costs in an attempt to return to profitability, or to make it more attractive to potential investors or buyers.

It is interesting to note that National’s secret agenda of “re-structuring” Solid Energy, to make the SOE viable for privatisation, is a technique quite familiar to our Prime Minister, John Key,

” During Key’s brief spell for Merrill Lynch in Sydney in 2001, he helped fire 500 staff as part of savage worldwide retrenchment by the bank. In the past, Key has appeared proud of his ability to sack without feelings. He told Metro magazine: “They always called me the smiling assassin.”

These days he insists these were not cheerful sackings.

“In the end I had to carry out wider responsibilities, but I think I’m fundamentally a nice guy, but have to follow instructions,” he says. “

“I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”

Shonkey the dirty rotten weasel is a “terminator of destruction” not “smiling assassin” Ever since he got into power we are seeing and feeling his dishonesty big time at the cost of people loosing there jobs left right and centre…So he can push through asset sales to sell off to his banking buddies and himself…These assets are not his, they belong to the people of New Zealand…He is just a bloody mongrel!!!!!

given the casino shenanagins playing out in the courts currently where the Brownlie directored company was going to scuttle the share price of sky city, by alledging dirty dealings in house, so a Macau base investor could buyout the company at a cheaper price…..

And given the potential loss of share value if the Solid energy moves indicate a risky investment in coal at present would allow someone like Bathhurst (who still seem to have confidence in the industry??) to pick up the shares more cheaply…..

“In the end I had to carry out wider responsibilities, but I think I’m fundamentally a nice guy, but have to follow instructions”… I’m sure that, or a paraphrase of it, was heard at Nuremburg in 1946… so whose instructions is Pino-key-oh following today…?

“Who is instructing Key?” Try Goldman Sachs, Merrill Lynch, BofA – Wall St giants and just so happen to be his former employers along with his new buddies at the US State Dept, US Defense Dept. all the while keeping his options open for when he has done his worst for NZ. A man has got to look to the future don’t ya’all know. Bit boring if all he has to look forward to is swanning around in Hawaii.

Bathurst Resources Ltd shares are listed on the Australian Stock Exchange. The major shareholders in the company are: Bank of America Corporation, Merrill Lynch International (based in London), Merrill Lynch (Australia) Ltd and Merrill Lynch (Australia) Futures Ltd (based in Sydney). Immediately before and after the Pike River Mine disaster, someone was buying up shares in the company. As at mid-December 2010, the last ‘Notice of change of interests of substantial holder’ was on 29 November 2010 increasing shareholding from 11.90% to 13.0% in name of Bank of America Corp signed by the bank’s Vice President. Merrill Lynch is owned by Bank of America. http://www.bathurstresources.com/ – then click on ‘Investor Information’ then ‘Announcements’ then ‘Change in Substantial Holding’ Pdf.